Customer Reviews

Driving Customer Equity : How Customer Lifetime Value is Reshaping Corporate Strategy

5 star:		(8)
4 star:		(3)
3 star:		(1)
2 star:		(2)
1 star:		(1)

 

 

Many marketing executives are challenged to evaluate the impact of their marketing communications and customer relationship strategies, but too often get bogged down in short-term measures like click-throughs and direct response. Driving Customer Equity is a valuable tool for quantifying the long-term impact of investments in building a brand and improving customer satisfaction. It is based on a logical framework that recognizes the financial returns from building brand equity, improving perceived value and increasing customer satisfaction. The book does more than provide a useful framework and report real research. It also includes hands-on tools that can be used by managers, consultants and researchers. I am recommending this book to all of my clients in the hope that it encourages a long-range focus that recognizes building customer equity is more important than short-term sales.

I approached this book as a heavy consumer of marketing literature in general and customer lifetime value literature specifically. Based on previous readings my expectations were low. However, the book's basic messages pertaining to customers not products, services not products, identifying the three drivers of customer equity and finally, how to estimate the numbers fascinated me. Through Customer Equity the reader can learn about some of the fundamentals behind what drives a company's profitability. CEOs are not concerned about the 4P's of marketing. Their focus is on the overall recourses allocation in order to secure future revenue from current and future customers. This book recognizes this and provides the reader with a roadmap to the allocation of the marketing budget among three main drivers of customer equity, i.e. brand equity, value equity or retention equity. Customer Equity provides the reader with sophisticated tools to estimate the financial consequences of the alternatives before they are executed. The ability to estimate the impact of improvement in any of the three areas on customer equity, will in my mind regain marketers access to the CEO -an access they lost to finance and strategy in the 1980s. In an era influenced by customer relationship management thinking, Customer Equity is a must reader for enlightened managers.

This is a very insightful book that makes you think about different approaches to a traditional problem. How do you continue to grow your company and increase your profits? The authors focus on Brand Equity, Retention Equity, and Value Equity. They suggest new ways to think about and manage your company to make sure you are focusing on the right things in this new high speed marketplace. This is an important book for any marketing professional who wants to stay abreast of the latest thinking and strategies to increase customer retention and value.

By presenting a simple yet powerful organizing framework linking marketing tactics to customer equity, this book helps marketing professionals understand HOW to execute a customer focused marketing strategy. It is practical and highly useful from start to finish. In addition, it is approachable yet deep enough to appeal to those looking for a strong start into this subject area.

The text is concise, with a balanced use of graphics and case examples. Each chapter concludes with a "Key Insights" and "Action Steps" summary. Time-pressed readers will find the style suitable for quick reading.

Dan Michaluk is a simulation designer for ExperiencePoint, creators of award-winning business simulations.

This book is an eye-opener. In practical, non-technical terms, it shows how corporate strategy (and especially marketing strategy) can be based on customer lifetime value rather than product profitability. It brings strategy in line with the latest thinking in customer relationship management (CRM). The ideas about making all marketing expenditures financially accountable are fascinating, and the book suggests how this can be accomplished through the concept of customer equity. Also, every company is trying to make the internet count, and this book shows how different internet marketing efforts can increase customer lifetime value in different ways. Some people at old-fashioned companies may have difficulty grasping some of these new ideas (which are rooted in the new economy and customer relationship management) but to progressive executives this book will look like the future of strategy.

The book provides a highly innovative strategic thinking. The conceptd are well defined and well argued. As an owner of a consulting business I found the customer segmentation of great value.

Since the beginning of the industrial revolution, companies have built an organization around their products. In the traditional corporate model, finance, marketing, information systems, and operations focus on the profitability of products rather than customers. In recent years, companies have attempted to become more customer focused but often lack the organizational structure and corporate strategy to succeed in this transformation. In Driving Customer Equity, Roland Rust, Valarie Zeithaml, and Katherine Lemon develop a conceptual framework to help companies reshape their corporate strategy to grow the lifetime value of their customer base, or "customer equity". Although the concepts and strategies in this book could, theoretically, grow customer equity, the lack of real world implementations offered in this book leave the reader unsure of the feasibility to existing firms.

Rust, et al., break down the customer equity strategy into four parts: examining the problems with traditional product-oriented strategies, defining the customer equity framework, developing a customer-centered strategy, and managing the customer equity strategy. Each concept within the customer equity strategy is clearly organized and explained. At the end of each chapter the authors provide a table of "key insights" matched to "action steps" for each insight. Throughout the book, these tables provide a high-level roadmap to implementing the customer equity framework.

Beginning with two important concepts, the "profitable product death spiral" and the "lifetime value of the customer", the authors build a good case for changing a company's focus from products to customers. The theory's foundation is that companies who remove unprofitable products from the marketplace may lose customers who purchase bundled products and therefore lose long-term profit potential. Rust, et al., argue that companies who focus on the value of the customer over their lifetime may choose to keep unprofitable products to maintain or grow their customer base and increase long-term customer equity.

The authors build on this basis by breaking down customer equity into three unique but interdependent areas - value equity, brand equity, and retention equity. Value equity of a company is "when what it offers matches what the customer expects and perceives value to be." The concept of value equity is used as the foundation of the customer's relationship with the firm. Brand equity is defined as the "customer's subjective and intangible assessment of the brand, above and beyond its objectively perceived value." Retention equity is defined as the "customer's tendency to stick with the brand, above and beyond objective and subjective assessments of the brand."

While none of these three concepts are new, Rust, et al., redefine these areas in terms of the impact, needs, and perceptions of the individual customer. The action steps at the end of these chapters, such as "Engage in marketing research to understand which definitions of value are relevant to your customers. Tailor offers to focus on different value perception," are mostly common sense. There are no novel gems of wisdom, but instead a woven fabric of simultaneous actions necessary for the customer equity strategy to work.

In subsequent chapters, the authors go on to develop a customer-centered strategy that tries to measure customer equity, evaluate the financial impact of different customer equity strategic decisions, and convince upper management that customer-centered strategy will be more profitable to the company. Each section is well written and again provides action steps. However, these steps, such as "Develop a uniform evaluation procedure for all improvement programs for increasing Customer Equity," are often very high-level or require very large investments in time or money.

The last few chapters investigate ways to manage customer equity through redefining market segmentation based on the profitability of each customer rather than demographic, geographic, or psychographic approaches. As a result of this new segmentation, the authors show that some customers who are actually a drain on the company's resources should be proactively removed from the customer pool, thus lowering costs. It may seem counter-intuitive to decrease customers, but the authors make a good argument and provide ways to remove the customers gracefully.

While the book is well written and clearly explained, there are a few problems with the implementation logistics for existing firms. Examples of successful shifts to customer equity strategy are scare and repetitious. Fed Ex, IBM, and banks are some of few real-world companies that are shown to have implemented parts of the customer equity framework. There is no example of a company who has adopted the entire customer equity strategy. Without at least one leader in this revolution, managers may hesitate to pick up the banner of customer equity.

Another complicating issue is the customer equity strategy must be implemented at all levels of the company simultaneously to be effective. Many of the action steps require a significant amount of time, money, and buy-in from upper management, as well as fundamental shifts in organization and company values. For a start-up company, this strategy could be incrementally implemented as the company grows, but for established organizations it is a daunting and most likely impossible task.

Rust, Zeithaml, and Lemon have described a very thorough strategy that will most likely become the standard of operation for new companies. The ideas expressed in Driving Customer Equity, taken as a whole, could grow value equity, brand equity, and retention equity. However, without a success story to rally interest, successful implementation for existing firms is out of reach unless the fundamental values of and dedication to the customer equity strategy are embraced by senior management, employees, and shareholders.

How many sales books are on your bookshelve? And how many of them go beyond the first sale? This book will take you one step further.

Everybody is so busy selling his products and services that they tend to forget the one who pays it... their clients. This book focusses on the importance of client relationships and tells you everything you should be doing. Unmistakenly true, although hard to practice as that's the only thing missing in the book.

Writing this review nearly six years after reading the book makes me realize I have to go reading it again. Not for the knowledge, but for the focus.

This book shows you the importance of been a client focus organisation through ''value, brand and retention equity''. Also good for strategy.

So this is what they teach about customer relationship management at the Ivy Leagues? Come down from your towers, oh lofty intellectuals! Three academically involved individuals have put together this specious tome that attempts to elaborate on the work of Peppers & Rogers. By page sixty three, we discover that their ideal company has created four new job titles - a customer equity officer, a brand equity officer, a value equity officer, and a retention equity officer. All this to analyze business strategies that inherently are common sense to anyone who recognizes that the customer is the one who purchases the product or service. Groundbreaking stuff, eh?

The authors give the example of a widget producing company, making us aware that such a company discovers that it is more important to be value-focused rather than retention or brand driven. The second major discovery is that customers value quality over price and convenience. Zounds! Widget makers don't need a team of management consultants to tell them that all things being equal, the quality of their mundane product is the most important aspect of staying in business, yet the authors make it sound as if they have created an evolved form of business analysis.

Shortly thereafter, the authors explain how we have shifted from transactions to relationships over the past few years, although "this shift is not fully comprehended by many business people". Ah, true Peppers & Rogers stuff! But wait a minute - since when did I have a relationship with the McDonald's counter person or the cashier at K-Mart? These guys should take a hint from books like "Brave New Service Strategy" by Gutek & Welsh. The fact is that not all businesses can establish relationships with their customers. The Peppers & Rogers model simply doesn't work in many commercial spheres.

By chapter three, we get into "customer lifetime value" measurements. Agreed - a key concept of so-called Customer Relationship Management (take a nasty hint from the authors of the Cluetrain Manifesto - nobody can manage a relationship with a customer today, because the customer is the one who calls the shots in a highly competitive and commoditized marketplace).

How do we calculate customer lifetime value, according to the authors?

- Time period chosen for analysis - The company's discount rate - The company's planning horizon - The customer's frequency of purchase - The average contribution from a purchase of this brand - The customer's most recent brand chosen - The customer's estimated probabilities of choosing each brand on the next purchase.

Hello! Have these people ever really looked at what we call CRM systems? They must be talking about a smarter version of Kubrick's HAL. The closest thing we've got to this type of analysis per customer today are graphics of moneybags and bombs to illustrate the relative value and cost of a particular customer (and this is just a warning to the CSR, not to management). We are still in the analytical dark ages and these guys are spending too much time in cloistered academic settings.

Sorry to be so scathing, but enough theory already!